WASHINGTON -- Rep. Dan Rostenkowski's long-awaited tax simplification bill, slated for introduction before the end of this month, may not be as beneficial to tax-exempt bonds as municipal issuers had hoped, congressional aides and lobbyists said yesterday.

Over the past year, Rep. Beryl Anthony, D-Ark., and the staffs of the House Ways and Means Committee and Joint Tax Committee had suggested a number of ways the municipal bond provisions of the Tax Reform Act of 1986 could be made simpler and more workable. When Mr. Rostenkowski, D-Ill., said earlier this year that he would introduce a simplification bill, issuers hoped the measure would incorporate many of those proposals.

But now tax aides and lobbyists say the bond component of the bill will be a very small one, not because of any philosophical opposition to easing bond curbs, but because Mr. Rostenkowski is determined to keep the bill from losing large amounts of revenue for the federal government.

Mr. Rostenkowski's concern about revenues "might lead [tax staff members] to pick only one or two things on the list of 'possible' [bond] items to keep revenues down," a municipal lobbyist said.

"I wouldn't hold my breath for a lot" of changes in the tax-exempt bond area, a congressional aide said. "Hopefully, it will grow as it moves through the committees."

Congressional aides declined to say which bond simplification items Mr. Rostenkowski will include in his bill, and lobbyists said they would not hazard a guess beyond predicting that only two or three would be included in the measure.

Mr. Anthony has proposed increasing to $25 million the $5 million small-issuer exemption from the arbitrage rebate requirement and the $10 million small-issuer exemption from limits on bank deductibility.

He also wants issuers to be allowed to retain a de minimis amount of arbitrage profits to encourage good investments of bond proceeds; eliminate overalapping yield-restriction requirements in cases where issuers also have to rebate arbitrage; repeal the so-called 5% unrelated-use test; and make the 1989 arbitrage rebate relief law retroactive to Sept. 1, 1986, when the Tax Reform Act of 1986 became effective.

Some of the proposals by the Ways and Means and Joint Tax committees are similar to those by Mr. Anthony. For example, the two staffs suggested repealing the 5% unrelated-use rule, as well as untangling yield restriction and arbitrage rebate requirements. The Ways and Means staff also proposed increasing the $5 million small-issuer arbitrage rebate exemption to $10 million and allowing issuers to retain a de minimis amount of bond proceeds.

Each staff also had proposals that did not overlap with others. For example, the Joint Tax staff suggested developing a plan to provide a safe harbor from complicated rebate calculations for bond issuers who commingle investments. It also suggested that Congress develop a system of alternative penalties to retroactive taxability of bonds, the only weapon the Internal Revenue Service currently can use in cases of tax-exempt bond abuse.

Meanwhile, the Ways and Means staff proposed requiring the Treasury to improve the State and Local Government Series program so it is more workable for issuers trying to avoid paying the rebate; and allowing issuers, when calculating the amount of arbitrage rebate they owe, to treat as one issue a short-term obligation currently refunded with a long-term obligation.

Mr. Rostenkowski originally had planned to introduce his bill by the ens of May, but that deadline slipped. Tax aides now say the measure could be introduced as early as next week, but probably will be unveiled closer to the end of this month, just before Congress begins its weeklong Independence Day recess.

The congressman originally had hoped to introduce the bill jointly with Sen. Lloyd Bentsen, D-Tex., the chairman of the Senate Finance Committee, but enough differences have cropped up between the two that they will probably offer separate bills, tax aides and lobbyists said.

That could present an opportunity for the municipal market, if Mr. Rostenkowski's bill is as narrow as aides are predicting now, lobbyists said. The Senate Finance Committee traditionally has looked more favorably on the tax-exempt bond area than the Ways and Means panel, and it may be willing to add more bond simplification items to its version of the bill than the number planned by Mr. Rostenwski, they said.

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